Look to Asia for Next Opportunities

08/28/2012 7:00 am EST

Focus: GLOBAL

Lorraine Tan

Director of Equity Research, Asia, Morningstar Research Pte. Ltd.

Despite projections for slow global growth, Lorraine Tan expects technology and energy to offer investment opportunities in Asia. She singles out Indonesia as a country that's especially well positioned, though she also likes the view for India and China.

Kate Stalter: Today, our Daily Guru guest is Lorraine Tan. She's director of research for Asia at S&P Capital IQ.

Lorraine, you will be giving a talk at the upcoming MoneyShow Shanghai, and your topic is pretty intriguing. You titled it "Opportunities in Sluggish Growth." Can you give us the big picture of what you intend to talk about, and then we can get into some of the specifics about those opportunities?

Lorraine Tan: Yeah, sure. I think we're going to expect to see pretty slow global growth over the coming couple of years. S&P economists are anticipating that the US is going to be growing at about 2%, and we're really not expecting too much growth out of the Eurozone.

All this sort of plays into much lower growth rates in Asia than we've been seeing, at least in the past couple of years, and definitely in much of the decade of the 2000s. So I think this presents some unique differences to how we need to play Asian markets in that sense.

Kate Stalter: Let's talk specifically, then, about the Asian markets. For our listeners who are familiar with growth investing, for a few years there, there were quite a few opportunities in China. Those seem to be not doing quite as well recently...but you do see some kind of resurgence?

Lorraine Tan: Yeah. I mean ultimately, at the end of the day, the Asian region will see the strongest growth globally as a whole.

Even if China slows, we're looking at about a 7.8% to 8 % GDP growth. That's still going to allow Asian companies, or basically Chinese companies, to grow at decent growth rates of around 10% to 15%, let's say. Granted, that's a lot slower than the 20% pace that we've been seeing, but it's still going to be relatively attractive.

Kate Stalter: Can you say a little bit about some of the sectors where you believe this growth might play out and be particularly strong?

Lorraine Tan: Yeah. I think for us, when we look at China, the main thing is that we've got growth that's still coming in pretty strong on its top line. So what's happening is that costs have been rising because salaries have been moving higher in China, which is part of their domestic policy.

What that means is that we're going to want to look for companies that are better able to contain costs. So I think for some of the sectors that we'll be looking at to try and sort of play this better growth prospect, we would be selective. I wouldn't say it's prospective, but select means they're going to be improving, sort of managing things much better than some peers.

So we're looking for opportunities in Asia, particularly some opportunities in technology. We still like some of the upstream oil producers on the expectation that things will slowly start to recover globally, and we also like some Asian banks and real-estate companies as well.

Kate Stalter: We've been talking a bit about China. How about elsewhere in the region?

Lorraine Tan: Besides the growth in China, you've obviously got pretty decent growth coming out of Indonesia and India as well.

But between the two, we have a preference for Indonesia, mainly because the inflation levels in India are still relatively high. So we think that monetary policy and fiscal policy flexibility in India is a lot lower, in case of any sort of events where the government may need to step in.

Indonesia is managing things a lot better, so we think that has been a top-performing market in the past couple of years. This year, it's come off a little bit, but is still doing quite well. So we think that there are still opportunities in Indonesia, where domestic growth has been pretty firm.

Kate Stalter: Now, for investors who are reading or listening to this interview, do you recommend that they begin to look for some of these opportunities at this moment, or should they wait a while and see what other changes occur globally?

Lorraine Tan: I think Asian markets aren't going to be going anywhere quickly because of what's going on with the Eurozone debt situation. And obviously, we've got the US elections coming up at the end of the year, and the questions over the fiscal cliff.

So these are some key hurdles that are still going to play into investor sentiment with the next six months. Having said that, I do think it's a good time to sort of start deciding which companies are worth dipping your toes into.

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